Tesco spies opportunity to come in from the cold with Russian store bid

Andrew Osborn
Tuesday 30 January 2007 01:49
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Tesco is believed to be eyeing a move into Russia's swiftly expanding retail market amid reports that it has held informal talks with the country's biggest supermarket chain, X5 Retail Group.

X5, which controls or owns the franchise to more than 1,200 food stores across Russia and the former USSR, issued a statement yesterday in which it said it did not rule out some form of commercial partnership with Tesco but insisted it was not preparing to sell its business.

Its statement raises the possibility that the UK supermarket giant may follow the likes of BHS, Marks & Spencer, Burberry, Monsoon, and Mothercare, and join Russia's burgeoning retail revolution.

The country's retail food market is expected to expand by an annual rate of 16 per cent between now and 2010.

According to the daily Kommersant newspaper, X5has held or is preparing to hold talks with two other foreign retailers apart from Tesco. The newspaper named America's Wal-Mart and France's Carrefour as Tesco's rivals. It said the meetings centred on the possibility of buying a controlling stake in the firm in 2008 after X5 exercises an option to buy a chain of Russian hypermarkets.

Such a stake would give a foreign retailer a real head start on its competitors, sparing it the difficult task of starting from scratch and growing organically in a market notorious for corruption and red tape. X5 insisted it was not planning to turn over its business to a foreign retailer altogether but appeared to leave the door open to some kind of co-operation. "The company and its major shareholders do not intend to sell its business in a medium-term perspective and are focused on the realisation of a five-year strategy of the group's development on the Russian market," Lev Khasis, X5's chief executive, said in a statement.

"We do not exclude, however, potential partnerships with these chains in various areas of mutual interest."

Tesco said it did not respond to what it called "rumour and speculation", but said "never say never" when asked whether it had any plans to expand into Russia. Tesco has stores in 12 countries outside the UK and is known to be keen to expand into promising emerging markets.

X5 was formed from the merger last year of two chains, Pyaterochka and ZAO Perekriostok, based in St Petersburg and Mos-cow respectively. It is controlled by Mikhail Fridman's Alfa Group. Just under one quarter of X5's shares are listed as global depositary receipts on the London Stock Exchange; its stock price values the firm at $5.9bn (£3bn).

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